Smartphones

Smartphones' Evolution Could Be Tough for Samsung


Kwon Oh Hyun, CEO of Samsung, at a press conference in Taipei, Taiwan, in 2009

Photograph by Maurice Tsai/Bloomberg

Kwon Oh Hyun, CEO of Samsung, at a press conference in Taipei, Taiwan, in 2009

Two camps of smartphone makers—Nokia (NOK) and its partner Microsoft (MSFT), and Motorola and its parent Google (GOOG)—held events Sept. 5 to unveil their latest handsets. A lot of stories have been written about these companies and their new products, but today’s news could spell trouble for Samsung, LG, and HTC.

Isn’t Samsung the world’s largest maker of smartphones? Yes, it’s true. And IBM (IBM) was once the world’s largest maker of personal computers, just as Sears (SHLD) used to be the country’s largest retailer. Things change, and things in smartphones are changing.

Let’s set the stage here: In the mobile world, there are three, maybe four, platforms. Google has Android, Apple (AAPL) has iOS, Microsoft has Windows Phone, and Research In Motion (RIMM) (such that it remains a factor) has BlackBerry OS.

Until recently those ecosystems could be divided into two categories: the ones where the hardware and software were developed by the same people (Apple and RIM), and the ones where the software was sold or given to manufacturers (Android and earlier versions of Microsoft’s Windows Mobile).

But then, in 2011, things changed. Nokia announced a wide-ranging partnership with Microsoft. Six months later, Google announced it was acquiring Motorola Mobility. Now two ecosystems that used to treat device makers more or less equally had either teamed up with or purchased hardware manufacturers.

The trend has continued: In June 2012, Microsoft announced it was going to build its own tablet, the Surface. Nine days later, Google showed off the Nexus 7, its very own tablet.

Both Microsoft and Google speak diplomatically about their hardware partners, but it’s clear where this is all going: The Apple model has won. The best way to create something compelling is to control as much of it as possible. For all its success in the smartphone market, Google executives know that low-cost phones, fragmented operating systems, and playing a low-margin volume game is not the best strategy. Microsoft, having been on the verge of losing the entire mobile and tablet market, has come to the same conclusion.

The fact that one company bought a manufacturer and the other merely allied with one is immaterial: There is now a favored Android maker, a favored Windows Phone maker, and then there’s all the rest. Does anyone really think that, as Windows Phone and Android evolve, Microsoft and Google won’t give Nokia and Motorola the best, first crack at it?

Samsung, despite its current might, has to be wondering—what’s in this for me? Presumably, one manufacturer can race to the bottom and become the lowest-cost producer, but that’s a tough way to stay at the top of the market. Also, when it comes to being the lowest-cost producer, it’s a little like the movie Highlanderthere can be only one.

Today, Samsung has a top-flight Android phone in the form of the Galaxy S III, and it’s true that Motorola’s announcements today were incremental improvements—nothing that blew anyone’s hair back. But Google’s purchase of Motorola has only recently concluded, and the fruits of that relationship have yet to be realized.

And while Samsung beat Nokia to the punch with a Windows Phone 8 handset by announcing it a week before the Finnish manufacturer did, that seemed more a PR maneuver than a real first strike. Also bear in mind that, at Nokia’s event, plenty of Microsoft executives were on hand to extol the virtues of the new phones, including Chief Executive Officer Steve Ballmer.

At some point, unless Samsung devises a way to create a credible platform of its own, it may acquire some undesirable characteristics: a large, diversified tech company that makes all manner of consumer products, but does not have an ecosystem to rise above the commodification that reduces the value of those products.

In other words, it could become Sony (SNE).

Grobart is a senior writer for Bloomberg Businessweek and the managing editor of Bloomberg Digital Video. Follow him on Twitter @samgrobart.

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Companies Mentioned

  • NOK
    (Nokia OYJ)
    • $8.37 USD
    • 0.24
    • 2.87%
  • MSFT
    (Microsoft Corp)
    • $45.43 USD
    • 0.55
    • 1.21%
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